Earnings report: Publicis, Bcom3 post drops in organic revenue for Q1

The trio of agency companies involved in the merger of Publicis Groupe and Bcom3 Group ended the first-quarter agency earnings season looking forward to a second-half recovery and to closing the deal.

Publicis and Bcom3 showed similar drops in organic-revenue growth, mostly due to the ad recession in the U.S., while Dentsu-which will become a large shareholder of Publicis after the deal-posted weak numbers due to continued softness in the Japanese market. Publicis expects to complete the acquisition of Bcom3 in September, pushed back from June because of regulatory issues.

North America was responsible for most of the revenue drop, down 4.9% on an adjusted basis to $234.7 million. Revenue in Europe, Publicis' second-largest region, was flat after adjustments, at $226.6 million. Asia Pacific was up 3% to $36.1 million and the rest of the world was down 1.7% at $22.6 million.

Net new billings in the first quarter totaled $117.3 million, which factored in the loss of General Motors Corp.'s Saturn Corp. account in the U.S. to Omnicom Group.

Georges Gurkovsky, analyst at Credit Suisse First Boston, London, noted the organic-revenue drop of 2.2% is still the best in the industry after Omnicom's 3.7% increase.

Most analysts held to their positive ratings on the stock but warned it will be volatile in the short term due to weak new business and to possible client losses fueled by conflicts in its acquisition of Bcom3. Mr. Benaich, though, said management has seen no signs of possible client defections.

The Bcom3 deal is now set to close sometime before the end of September, after regulatory and shareholder approvals, said Mr. Benaich. The Securities and Exchange Commission has indicated it will seek a full review of the deal. That and other regulatory approvals will slow the process, said Bcom3's chief financial officer, Eileen Kamerick. Both executives stressed the deal is expected to clear all reviews.

Bcom3, which owns Leo Burnett Worldwide and D'Arcy Masius Benton & Bowles, reported net income rose to $20.5 million from $2.6 million a year ago. Factoring out $15 million in accounting charges taken in 2001, profit was up 16.9%.

slight revenue drop

Revenue fell 0.3% to $445.7 million. Domestic revenue dropped 0.8% to $244.8 million, but was down 4.5% after factoring out acquisitions, a drop Bcom3 attributed to decreased spending by clients. International revenue rose 0.2% to $200.9 million; it fell 2.2% on an organic basis.

Dentsu posted consolidated revenue-including subsidiaries and affiliates-of $14.2 billion, down 1.4% for the fiscal year ended March 31, and net income of $217 million, a drop of 33.6%.

Management projected Japan's economy will remain weak, with no upturn in ad spending until the second half of the new fiscal year. Dentsu management also projected revenue will drop 3% to $13.8 billion in fiscal 2003 and net income will plummet 51.9% to $104 million.

Gilles Renaud, analyst with Credit Suisse First Boston in Tokyo, called the forecast "somewhat surprising." In a report, he speculated the company is anticipating extraordinary charges beyond the expense of a planned move to a showcase new headquarters building in October.

Mr. Renaud's analysis noted Dentsu's shares have come down in the past two months as investors worry about a selloff by shareholders who hold 54% of Dentsu stock. The shareholders were restricted from selling shares after the initial public offering in November; that restriction expires at the end of May. Dentsu shares closed at $5,232.24 on the Tokyo Stock Exchange May 17, off the March 18 peak of $5,854.37. Still, the stock has moved up sharply from its IPO: Dentsu went public Nov. 30 at $3,411 a share.